Transfield flush for redeployment

Transfield Services
plans to use some of the proceeds from the $US255 million ($240 million) cash sale of its North American facilities maintenance operations to invest in its Easternwell operations as it continues to shift its business model away from low-margin work.

Combined with the $89 million Transfield is raising from the sale of a 23.8 per cent stake in Transfield Services Infrastructure Fund (just over half its 43.8 per cent holding) to Thailand’s Ratchaburi Electricity, the US sale will also enable the group to invest more than the $83 million it said it would put into Easternwell, the oil and gas driller it bought last year.

“[The sale] frees up capital to redeploy," said
Peter Goode
, Transfield’s chief executive, adding that Transfield could put a lot more money into Easternwell, which needs cash to purchase drilling and well-servicing rigs.

Transfield expects Easternwell to contribute $100 million to $110 million of earnings before interest, taxation, depreciation and amortisation in fiscal 2012, up from the $80 million forecast at the time of acquisition.

Although Transfield will continue to look at other divestments, Mr Goode said yesterday’s sale was “the last step" in reorganising the company following the reduction of its holdings in Transfield Services Infrastructure Fund and the restructuring of its Australian and New Zealand businesses, which will create a resources and energy division as well as an infrastructure division.

But Transfield does plan further small specialised acquisitions similar to Easternwell’s $20 million purchase of the Queensland coal drilling operations of Silver City Drilling.

Mr Goode also damped speculation about a possible acquisition of Transfield by rival services group UGL, claiming Transfield was comfortable where it was and “has a good head of steam" on its own.

UGL has been pursuing takeover discussions with Transfield but Mr Goode said the company was not in current talks with its suitor.

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Transfield meanwhile is trying to edge into UGL’s territory by moving into higher-margin services businesses, such as engineering and design. UGL “should absolutely be worried" by Transfield’s move, because the company’s changes were starting to “gain momentum," Mr Goode argued. Transfield’s share price has risen 11 per cent this year to $3.73 yesterday.

Transfield sold its North American maintenance operations to US mechanical and electrical construction group Emcor after putting the business up for sale in February. A group of some 42 potential buyers was narrowed down to a short list of three before Transfield entered into exclusive talks with Emcor. The sale will be used primarily to pay off debt, helping Transfield to reduce its gearing below its target range of 25-35 per cent.

The sale, which had a book value of $US265 million, was done at a multiple of 11 times fiscal 2011 earnings. Transfield acquired the business for a multiple of 9.7 time earnings in 2006.